Which insurers can expect to be consolidated

Middle market and non-specialty insurers will be the central targets of consolidators into 2024, and some may even withdraw entirely from the P&C insurance market, suggested Phil Cook, P&C consultant and chairman of Omega Insurance Holdings Inc. at the Insurance Institute of Canada’s Industry Trends & Predictions: 2023 webinar.

On top of that, the industry can expect broker consolidation to continue in 2023. However, Cook predicts the broker role will change in the new year.

Why will Canada see more insurers withdraw or consolidate? The high number of carriers in Canada means our population is over-served, he says.

“I think we will see consolidation at the insurer level, but I think we will also see withdrawals at the insurer level,” Cook says. “As the commodity products gravitate to larger and less insurers, what’s left will probably be under some stress and result in some withdrawals.”

There are more than 193 private, federally-regulated P&C insurers in Canada in 2022, according to Insurance Bureau of Canada and Canadian Underwriter‘s 2022 Stats Guide, which draws on MSA Research data. There are approximately 30.7 million adults in Canada (20 years or older), according to Statistics Canada. That means about 159,000 Canadians per insurer.

If you include all of the provincially licensed companies as well as mutuals, Cook says, there are just under 300 insurers — meaning one insurer per about 100,000 people.

This is a high service percentage, says Cook. “I don’t think there’s a country in the world that has that…I would say we’re over served.”

On top of that, the Top 10 private insurers accounted for about 70% of all business written by federally-regulated insurers in 2021, according to Canadian Underwriter’s 2022 Stats Guide.

“At the bottom end [of insurers], the specialty companies will remain because they’re specialty companies,” says Cook. “For companies that are middle market, and don’t have a particular specialty, and don’t have the ability to become big quickly, I think they’re either going to be taken out, acquired by the larger companies because of that premium volume, or they’re going to turn into specialty companies — but there can only be so many of those.

“It’s a bit esoteric, but I think it’s inevitable that we’ll see fewer insurers here. And the staffing and the systems issues are forcing a lot of insurers to think about merging or selling to larger insurers with the infrastructure.”

Cook drew upon OSFI numbers that show how many insurers have left or withdrawn from Canada.

Almost 160 federally-regulated Canadian P&C insurers have become inactive since 1997, according to OSFI’s Financial Data for Property and Casualty Companies.

“It’s not unusual to see that,” says Cook in regard to insurers leaving or closing in Canada. “A lot of those have been replaced. But what I don’t see is a lineup of new insurance coming here. So even if we had the same attrition rate, I don’t think they would be replaced.

In terms of broker consolidation, Cook notes that it is very active, but is “not sure, personally, whether consolidation into single entities is necessarily the best route.”

“Certainly consolidation, either at the productivity level or the ownership level, is going to continue, and I think that’s probably a good thing,” he says.

But Cook sees the broker role as changing to more of a “value-added consultant.”

“I think the services provided by the broker community will move more towards a risk management consulting fee for services, rather than simply the conduit to place coverage.”

Feature image by iStock.com/Andrii Yalanskyi